Tata Elxsi Ltd. shares extended losses for a second straight trading session on Tuesday, falling as much as 6.2% to Rs 3,469.70, as investors reacted to weaker profitability despite revenue growth in the June quarter.
The decline followed the company’s first-quarter earnings, which showed revenue returning to growth on a sequential basis but margins and profit declining sharply. Brokerage firms also lowered their target prices after the results, citing pressure on profitability.
The market reaction reflected concerns over five key factors: a sharp miss on margins despite a revenue beat, continued weakness in the transportation business, lower spending by European automotive customers, the impact of large deals on profitability, and target price cuts by brokerages.
Margins Missed Despite Revenue Growth
Tata Elxsi reported consolidated revenue of Rs 1,021 crore for the June quarter, up 2.8% from Rs 994 crore in the previous quarter. However, earnings before interest and tax (EBIT) fell 12.4% sequentially to Rs 193.8 crore from Rs 221.3 crore.
The EBIT margin declined to 19% from 22.3%, while net profit dropped 22.6% quarter-on-quarter to Rs 171 crore from Rs 220 crore.
Transportation Business Remained Under Pressure
The transportation segment declined 0.4% sequentially as automotive demand remained subdued.
The company also said transportation continued to face pressure because original equipment manufacturers maintained cautious engineering spending.
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Europe Business Weakened
Revenue from Europe fell 1.9% sequentially as automotive original equipment manufacturers continued to reduce engineering expenditure.
The slowdown in spending added to pressure on the company’s performance during the quarter.
Large Deals Weighed On Profitability
The company said margins were affected by delivery mix, higher investments and a wage hike.
According to JPMorgan, profitability was also impacted by “large deal transition, ramp-up costs, onsite delivery investments” and other factors. The brokerage said, “Some of these costs will go away over the next one to two quarters.”
The company maintained that its deal pipeline remained healthy and that it expects a gradual recovery.
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Brokerages Cut Target Prices
Kotak Securities maintained its “Sell” rating on Tata Elxsi and cut its target price to Rs 3,000 from Rs 3,800.
The brokerage said, “Another muted quarter due to sustained weakness in automotive,” adding that recent large deals and investments are weighing on profitability. It retained its expectation of high single-digit growth for FY27E but said the margin reset has led it to cut earnings estimates for FY27-29 by 10% to 14%.
JPMorgan maintained its “Neutral” rating and reduced its target price to Rs 3,500 from Rs 3,600.
The brokerage described the quarterly performance as “mixed”, saying the company “beat on revenues but margins missed sharply”. It also cut its earnings estimates by 1% to 13% for FY27-29, driven mainly by lower margin assumptions.
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